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A downgrade to the AAA credit rating would mean higher borrowing costs, dangerous as Britain struggles out of recession. Officials have warned that the deficit here will reach 12 per cent of GDP, worse than in Greece, Portugal and Spain - which have all been downgraded.

Clarke said there was now a growing threat of a credit ratings downgrade for the UK.

'Ahead of the election we saw the risk of downgrade at close to 50 per cent. On the basis of the election outcome as it looks now, a downgrade looks to be the most likely outcome,' he said.

Brian Hilliard, UK economist at Societe Generale, would seem to agree: 'The markets have been patient with the UK but time is running out fast. There could easily be an attack on the pound and on UK government securities if the markets sense deadlock in the political negotiations.'